Relative Strength Index RSI
Definition of 'Relative Strength Index RSI'
Because this is an oscillator style indicator the value always "oscillates" between two extremes which are 0 and 100. Values in the upper band, between 70 and 100 indicate an overbought situation. Values in the lower band, between 30 and 0 represent oversold values.
The formula for the RSI is:
RSI = 100 - (100 / (1 + RS))
RS = Average Gain / Average Loss
The default and most common number of periods to average for the RSI is 14.
In the above chart for IBM the RSI remains mostly between the lower 30 band marked with a green horizontal line and the upper 70 band marked with a red line.
Above is an image of the spreadsheet that you can download below to play around with and try different values of RSI.
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